5 Powerful Mega-trends Transforming Asia’s Family Offices
These are interesting times for family offices in Asia. It’s business as usual on the surface, but underneath it all, significant mega-trends are quietly brewing and shaping the future. With the start of a new decade sparking bigger than usual thoughts about the future, here are five powerful mega-trends shaping Asia’s family offices over the next decade.
Asia’s wealth boom
Family offices are thriving across the globe, and nowhere more so than in the Asia Pacific region. According to Campden Research, the number of single-family offices operating in the Asia-Pacific has risen to approximately 1300, representing a 44% increase since 2017. Growth in the number of family offices is expected to continue over the next decade, owing primarily to three main trends.
First, Asia has witnessed unparalleled wealth creation in the past few decades. This will only speed up as the global economy’s center of gravity shifts east. In the year 2000, the Asia-Pacific region accounted for just under one-third of global GDP but is now on track to top 50% of global GDP by 2040.
Asia is now creating more ultra-wealthy individuals — those worth $30 million or more — and accumulating wealth faster than any other region in the world.
Second, many family patriarchs and matriarchs are edging into retirement resulting in massive intergenerational transfers of wealth. Over the next decade, the need for succession planning will make financial management professionalization via family offices a higher priority.
Third, the proliferation of global regulations and intergovernmental cooperation on tax issues will increase regulatory complexity and risk. This will push many families to centralize the management of their global financial affairs through a family office set up.
The coming of age of Asia’s next generation will have significant implications for ultra-high-net-worth families and family offices. As alluded to previously, intergenerational planning and succession will be among the most critical focus areas for family offices as the 2020s progress.
Navigating generational transitions will be complicated as many of Asia’s leading dynasties are only in their second or third generations — a fragile time for succession. With open conversations about the next generation still often considered a taboo subject, and most families yet to set up formal institutional structures to manage their wealth, the next decade will be a challenging transitional time.
As next-generation heirs take the reigns, there will also be implications on investments. Many next-gens are Western-educated, have worked in a different country, and are keen to bring new benchmarks to Asia. They have different preferences and approaches to their parents regarding investing, preferring entrepreneurship, private equity, and venture capital, especially in the technology and startup world.
Moreover, next-gens have also grown up in the age of moral capitalism, giving them a keen interest in making impact investments that generate measurable benefits to society and the environment.
A prevailing atmosphere of anxiety hangs over global markets and the broader international business climate, and this is set to continue into the 2020s. There is now palpable fear that a prolonged slowdown and recession is approaching that may last several years.
The impact of an extended anxiety-driven malaise over the next decade will be sustained market volatility and uncertainty, as well as an increase in the cost of doing business. Coupled with low-interest rates and declining returns in public markets, heightened anxiety levels will also lead many family offices to realign their investment strategies to mitigate risk and increase their cash reserves.
More family offices will eye private equity opportunities as a source of growth and an alternative to stocks and bonds along with other alternative sectors like private debt and hedge funds.
Increasing non-financial risks
The list of risks keeping wealth advisors and family office professionals up at night is on the rise. Non-financial risks related to cybersecurity, the environment, and regulatory compliance, in particular, will become more of a focus for family offices as inextricable linkages between the political, economic, social, and ecological world increase complexity.
Cybersecurity: Risk management programs are not keeping up with the pace at which cyber risks are developing. Cybercrime statistics indicate that family offices are becoming more frequent victims of targeted data breaches. 28% of international families, family offices, and family businesses have already fallen victim to cyber-attacks, according to a study from Campden Wealth and Schillings, and this trend is expected to escalate over the next decade.
Hackers obtaining confidential information, installing ransomware, initiating unauthorized payments, or disrupt online systems can have a devastating impact on privacy and reputation.
Environmental: Concerns are growing over the existential challenges posed by climate change. The UBS and Campden Wealth Research Global Family Office Report 2019 found that 53% of family offices now consider climate change the single greatest threat to the world. The environment is already having substantial local impacts in regions across the globe. According to McKinsey, climate change now poses a direct threat to many factors of production upon which economic activity and business are based.
Regulatory: The proliferation of global regulations and intergovernmental cooperation in recent years has increased regulatory burdens, costs, and risks at a time when the general public is becoming more critical of big business, wealth, and inequality.
New regulations and cooperation will drive the need to professionalize and centralize worldwide financial affairs management over the next decade.
For many of Asia’s wealthiest and oldest fortunes built on real estate, heavy industry, and manufacturing, the necessity to adapt to an unfamiliar digital world is increasing.
Fuelled by digitalization, mobilization, automation, and disintermediation, a new digital economy is emerging and disrupting almost every industry from media, telecom, financial services, and real estate to retail, manufacturing, healthcare, insurance, and education in the process.
Significant advances in communication and connectivity and further breakthroughs in emerging technologies like blockchain, artificial intelligence, nanotechnology, and quantum computing will mean that businesses will be managed and operated in entirely new ways by the end of the decade.
There will be significant challenges to transform digitally across multiple business units as new technologies and business models threaten complete disruption but also present once-in-a-generation opportunities for growth.
Family offices will play a significant role in digital transformation, from investing in new technologies and systems to identifying new digital platforms that present significant wealth generation opportunities.